Dreams without a vision: Indian Parliaments

New Delhi,Dinesh Trivedi(TH): For the first time in Indian parliamentary history, to my mind, no Railway budget was presented. It was only a budget speech by the Railway Minister with a statement of intended, pipe dreams. In normal circumstances, a budget must have a vision, a policy, destinations, and achievable targets with timelines. Unfortunately, none of this found mention in Mr. Suresh Prabhu’s speech. And, Mr. Prabhu has left the road map and achievability to “Prabhu”, God, Ishwar, call it by any name or faith!

A Railway budget is essentially a huge opportunity for any government to push forward GDP growth by at least 2.5 per cent. So, this government, in its second budget, has lost the opportunity again. There was huge expectation not only in India, but also across the world for a completely new orientation and a path-breaking budget from this government and Mr. Prabhu in particular. For a government which has come to power with such a thumping majority and promises of “Achhe Din”, these expectations were not unfounded. It’s been a big disappointment, to say the least.

Funding plan

The Minister proposes to invest Rs.8.56 lakh crore over the period of 5 years, from 2015-2019, but does not provide a plan of how the projects are going to be funded. First, the financial condition of the Railways is pitiable. With an operating ratio of 92 per cent in 2014-15 (which implies less availability of capital for investments in infrastructure), it is difficult to finance any projects from its own revenues. The budget places high importance on institutional finance and long-term debt instruments as extra budgetary resource, but this supposition falls apart on a simple premise: how does one expect these “multilateral and bilateral institutions” to invest, solely based on rhetoric, in an organisation which is mired in a financial crisis, thereby undermining its financial credibility in terms of non-availability of a revenue model? There is nothing called a free lunch.

His four goals for the transformation of the Indian Railways, viz., improvement in customer experience, safety, expansion of capacity and making the Railways self-sustainable in terms of finances, are each lacking in a definitive road map and are thereby unrealistic and just sound like good intentions.

Let’s start with the first: customer experience. Mr. Prabhu has very succinctly detailed his ideas of cleanliness, entertainment, catering, etc, but what he is forgetting is that such measures, while important in themselves, require massive efforts not only in maintenance, but also in creating state-of-the-art infrastructure. Mr. Prabhu forgets that the majority of the poor struggle to get into a compartment. They queue up sometimes a day in advance just to get into a compartment. Compartments are overcrowded by twice their capacity. In other words, poor people still travel in unreserved compartments in inhumane conditions. Customer experience cannot be limited to the Shatabdi and the Rajdhani trains alone. Customers on these trains would be more vocal perhaps, but the real help should be for the poorest of the poor.

Talking about safety

Second, nothing exceptional has been announced with regard to safety. The Kakodkar Committee which was commissioned during my tenure and whose recommendations the Ministry plans to examine in April 2015 gave its final report back in February 2012. Why was this report gathering dust all these years? The precious loss of time and consequently the huge cost overrun, has meant that safety standards (or the lack of them) have remained in an “as-is” state. Third, with regards to enhancing capacity of Railways: the Minister has by his own admission, stated that 492 sections of the Railways are running at a capacity of more than 100 per cent. And 228 are running between 80-100 per cent. Further, The Golden Quadrilateral and the diagonals connecting the four major metros constitute less than 16 per cent of the route, but account for more than 50 per cent of the passenger and freight traffic. These routes have reached over saturation levels of capacity utilisation and are strained to breaking point at present. What is the remedy provided by the Minister? Fast tracking of sanctioned projects of doubling, tripling lines, and priority to last mile connectivity projects, without any timeline. In the Railways, “fast-track” can be a deceptive word: there are currently 360-odd pending projects in the Railways’ kitty, some ranging from 30 years to 2 years.

Finally, the fourth goal to make Bhartiya Rail financially self-sustainable is stated as follows: “Generate large surpluses from operations not only to service the debt needed to fund our capacity expansion, but also to invest on an ongoing basis to replace our depreciating assets.” With an operating ratio, even if Mr. Prabhu achieves 88.5 per cent next year, the Railways is left with less than 12 per cent of revenues and in order to replace the depreciating assets, which itself will cost the Railways Rs.12,000-15,000 crore. What kind of large surplus is he talking about, and how on earth is he going to service the debt if he genuinely finds some generous but unrealistic businessmen to fund a loss-making project?

Lost opportunities

Looking at the budget announcements, there is an intent of 77 new projects (doubling/tripling lines, etc) worth Rs.96,000 crore, but does he really have the Railway Board with him? Where is the sanctioned and funded plan to break the cycle of “underinvestment”? Instead, there should have been a focus to improve the operating ratio to get cash generation going. Yes, there is stated goal to get it down to 88.5 per cent but there are no defined plans for improving asset utilisation, reducing turnaround times of wagons (which has taken a turn for the worse), improving system velocity by upgrading signalling, powering-up underpowered freight trains, converting all local trains to MEMU or DEMU, and implementing modern technology such as distributed power, all of which is needed to get the operations in order and get cash generation going. There is no plucking of such low-hanging fruit. Instead, the focus is on expensive high speed trains and train-sets which they cannot afford or justify economically. Such white elephant projects will suck out all the investment oxygen from the smaller projects that will actually improve the performance. For instance, train sets would cost almost double those of conventional trains. The train sets cannot run on the given infrastructure as you would have to have total fencing of the entire route and ensure not a single animal, leave alone people, would have access to the track. So, the fact is, even Delhi-Agra, on a high speed track, in present conditions, will I think take another 2 years at least.

Freight

Looking at the freight business of the Railways: freight has grown at an abysmal 3 per cent over the last year, and coupled with an increase in freight rates, there are possibilities of freight revenue migrating to road. Already, competition from roadways has resulted in the share in total transport output for road at 50 per cent, while rail stands below it at 36 per cent. Passenger traffic volume has in fact gone down by 3 per cent from last year. The turnaround time of wagons has increased over the past 3 years, while it should have decreased. There have been no steps initiated to improve this parameter, and accelerating the growth rate of freight which is the bread and butter of the Railways.

Budget estimates for 2015-16 – Gross traffic receipt is expected to grow by 15.3 per cent to Rs.1,83,578 crore, passenger earnings will grow by 17 per cent and incremental freight traffic is 85 million tons, i.e. a growth of nearly 8 per cent. All these lofty dreams are extremely difficult, if not impossible to achieve unless there is a quantum jump in the productivity of the existing assets and overall operational efficiency. Appropriation of pension fund has gone up by Rs.6,000 crore but provision for depreciation continues to languish at Rs.7,900 crore only as against Rs.6,800 crore in 2014-15. Similarly, appropriation to development fund is Rs.5,750 crore as against Rs.7,800 crore in 2012-13. In brief, the budget estimates for 2015-16 present a grim picture of the financial health of the Railways.

One of the most important inputs which Mr. Prabhu cannot avoid is the 7th Pay Commission, knocking at the door, and which could go as high as double that of the 6th Pay Commission: anywhere to the tune of Rs.25,000-Rs.30,000 crore per annum, crippling the finances of the Railways even further. The total Plan outlay is stated as Rs.1,00,011 crore, out of which institutional financing is targeted Rs.17,136 crore, which is doubtful.

It seems the much hyped dream run of the bullet train has ended as reality has finally sunk in, as the Ahmedabad-Mumbai track is still in the final stage of surveys of about Rs.300 crore per kilometre, and would take at least 7-8 years in completion (being highly optimistic), after 2-3 years of the process of land acquisition.

It is quite evident from the budget proposals that inputs that use the experience of the Railway Board have not been reflected. In the official box where the Railway Board members were seated, it was no surprise to see the disinterest and lack of concern for the Railways reflected all over their faces.